Over the past decade, we have witnessed changes in the real estate industry that literally dwarf any previous adjustments to the nature of this business.
Both prices and volume went through the largest rise and fall of any previous point in history. At the same time, the process of how homes are bought and sold was also being revolutionized.
Like the rollercoaster at any amusement park, the ride was exciting and terrifying all at the same time. Now, that we’re through the worst of it, let’s look back at the key ingredients of this seed change and examine how the transformation we experienced might affect the real estate business for years to come.
-Rise and fall of the market: The meteoric rise in home prices and the number of homes sold, along with the subsequent fall, was an earthshaking event for the real estate market.
Like any unsustainable trend, it’s simple to now look back and clearly recognize that it all had to ultimately come tumbling down. But, while the housing bubble was being inflated, we suffered from a collective economic euphoria that deluded us from reigning in the runaway train.
In retrospect, what’s even more remarkable is how the housing bubble was only a few short years after the dot com bubble. In 2000, former Federal Reserve Chairman Alan Greenspan warned of what he called, “irrational exuberance,” as stock prices mindlessly chased after every Internet-based business model, without any regard for how these enterprises would actually make money. Greenspan was right, and the market eventually corrected itself.
So you would think that just a few years later it would be possible to recognize the onset of irrational exuberance with respect to the housing market. But every bubble is predicated on the false notion that, “this time it’s different.”
For the dot com boom, there was at least the basis of a tangible invention that could massively improve business efficiency and productivity; that invention being broad consumer use of personal computers and the Internet. With the housing boom, the foundation for growth was based on a far more ethereal footing.
No one group is responsible for the housing bubble. Rather, it was a team effort. The politicians probably started the ball rolling with the Community Reinvestment Act, followed by Fannie Mae and Freddie Mac. With the noble, but misguided idea that “everyone” should be able to own a home, irrespective of financial ability or personal responsibility, the government put in place the laws, regulations and subsidies necessary to artificially energize housing demand.
Wall Street then grabbed the ball and ran with it, immensely inflating the effect of bad government policy by leveraging mortgage backed securities into questionable financial products. Consumers, now flush with easy money produced in the process, created an explosion in demand for housing, pushing prices up well beyond sustainable levels.
When large numbers of unqualified borrowers began to default, Wall Street could no longer conceal bad loans by bundling them with good ones. The money dried up, and housing prices collapsed.
The subsequent deleveraging necessary to correct the market was, and continues to be, a slow and painful process, because housing is a basic human necessity that isn’t easily or quickly repossessed.
-Changes in how houses are bought and sold: Concurrent with all this turmoil in the housing market, there were also significant changes in how people would buy and sell homes. Fueled mainly by the growth in technology, the traditional methods of house hunting are now, in large part, accomplished via the Internet.
Much of the initial leg work that used to involve driving around and looking at properties with an agent has been replaced with the vast amounts of information, pictures, and even video that can be easily obtained online. Buyers can even use their cell phones to instantly retrieve information on a house they might happen to drive by.
Once the house of choice has been identified, and it comes time to write an offer, technology has also created new options for getting a contract signed, delivered and negotiated.
In the old days, we’d sit down with a client, put a pen in their hand and wade through the 50 or so pages of a contract, signing and initialing sometimes two, three or four places on each page. Now, we have the ability to do all that signing electronically.
There are services, such as DocuSign, that will allow us to mark each place that requires a signature. The document can then be emailed to the buyer, who can sign it electronically with any computer, and the finished contract is then automatically emailed back to us.
It’s a tremendous time-saver and a real convenience for buyers and sellers whose busy schedule, or distance from our office, might make it difficult to sign their John Henry with pen and paper. As the contract is negotiated, and changes are made, initialing those changes can also be quickly handled via DocuSign and email.
As much as all this technology can help expedite the process and make it more efficient, there is a downside. The increase in computerized communication has led to a reduction in face time between agents and their clients.
Especially with new buyer or sellers, and the first time you write an offer, it’s important to sit down at a conference table, look each other in the eye and make sure everyone understands what they’re signing, how the process will unfold and what possible outcomes could result.
The purchase contract and undertaking of buying or selling a house is extremely complicated. There’s a lot of money on the line, and a myriad of ways to get in trouble. No amount of technology will ever replace the need for agents and their clients to sit around a table and talk it over.
The same is true when you’re looking for a home. You might be able to draw a lot of conclusions by looking at a house on your laptop, but you won’t know if it’s the right place until you actually walk inside. Many times, we have clients who are surprised by how different a house is in person, versus how it looked online.
Like any other business, real estate will continue to evolve. The market is constantly changing, as are the tools we use to help our customers.
What we’re likely to see for the next couple of years is a slow, but steady, growth and an increased calming from the gyrations of years past.
Bob and Donna McWilliams are practicing real estate agents in Maryland with more than 25 years of combined experience. Their email address is [email protected].